Initiating Coverage Buy CESC Ltd.; Target Price: Rs 371 ::Emkay

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Initiating Coverage

CESC Ltd. Reco: BUY CMP: Rs 260 Target Price: Rs 371 Triggers for valuation discount to narrow down; Buy ·      Even though CESC’s valuations have always been cheaper vs. peers, discount (60%) has increased. While other IPP stocks have rallied 5-20% post 80% FSA directive, CESC is down 4% ·      This is despite CESC holding 100% LOAs (5.6mnMT) for both its under construction projects – Haldia (600MW) and Chandrapur (600MW) - with all other clearances in place ·      Expect 44% earnings CAGR over FY12-15E owing to 1) under-construction projects contributing from FY14E, 2) consistent 19% ROE from distribution business, 3) declining losses in Spencer’s and 4) enough accruals to fund equity requirements ·      Given significant LOAs and reducing retail losses, we expect the valuation gap to narrow down. Multi brand FDI remains added trigger; Recommend Buy with TP of Rs371; Key risks – lower tariff hike for distribution & higher losses in Spencer’s

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